Nevada is headed for hard times. Perhaps for the first time in our modern era, Nevada will be hard hit by the national economic woes. I won’t take the time here to recount all of the factors that drive this economic downturn. You are probably feeling them yourself. Suffice to say that in previous downturns, Nevada escaped the full brunt of them. This time we’re taking the full force of the storm. In the downturn in real estate, we’re taking it harder than most.
We as a state will probably be able to tip-toe through this with savings and budget adjustments from what should be a relatively quiet special session. But, I promise you the next full session will be full of hard decisions. The most important of which will be a sober examination of state services. Some of our state leaders — especially those who have already gone on record saying that they cannot cut their kingdoms by even one FTE — will not be up to the task. In the next session, everything will be about efficient, better delivery of state services, not in job protection or kingdom building.
For now, here’s the governor’s address. It’s worth reading.
GOVERNOR JIM GIBBONS
SPECIAL SESSION ADDRESS 2008
My fellow Nevadans. Thank you very much for tuning in tonight. I requested this time to speak with you to talk about the state’s ongoing fiscal crisis.
The State of Nevada currently has a budget shortfall exceeding one-point-two-billion dollars. And while I’ve worked diligently with lawmakers in recent months to balance our budget, we must find a way to reduce an additional 275-million.
I want you to know that a tough economy is something we all go through together. We all know that feeling of dread as the gas tank creeps closer and closer to empty. We all know that milk and eggs cost a heck of a lot more this year than they did last year. And we all know that healthcare isn’t getting any cheaper.
But these costs alone aren’t the root of our problem. There are many other factors, like the housing and credit crunch … and the broader spike in energy costs … all of which have damaged our economy.
This overall downturn has dragged us down. Our Nevada economy lost 10-thousand-300 private sector jobs last year. And in Nevada we now have a higher unemployment rate than in the months following the terrorist attacks of September 11th.
Just like families, businesses are facing higher costs and they often can’t pass it on simply by raising their prices. So instead they cut back. They cut back on payroll. They cut back on discretionary spending, on building projects, and on other investments like buying new equipment.
In short, our entire economy is struggling. And that means many of you, the people of Nevada, are struggling, too.
We’re not alone in this downturn. Nearly everywhere in the nation, people are facing higher costs for basic necessities, as well as significantly higher travel costs.
This has affected the number of people who come to Nevada for recreation … and how much they spend when they get here. Higher fuel costs have forced airlines to cut flights and increase ticket prices. Just recently, US Airways announced it was cutting almost half of its flights to Las Vegas, resulting in eight thousand fewer seats available per day. For tourists who drive to Las Vegas, gas prices at four-50 a gallon leaves many people reconsidering the trip, or spending less once they get here.
At this point the math gets pretty simple. When businesses and people spend less money, there are fewer taxable transactions, meaning the state collects less tax revenue. That’s led us to our current problem.
The two-year state budget was created more than a year ago based on expectations that our economy wouldn’t be this bad. Unfortunately, the best economists can’t always predict economic turbulence, and the state has seen its tax revenue shrink well below what was expected.
Over the past several months I have worked with Legislators to balance a budget shortfall for the current two-year budget cycle of nearly 914-million dollars. We’ve accomplished this through a variety of methods, including reductions to state spending, using the state’s Rainy Day Fund and delaying construction projects.
We have balanced this 914-million-dollar shortfall without layoffs and without significant reductions to state services. Some of these decisions have been incredibly difficult, but I believe we have acted responsibly and made the tough decisions that families and small businesses throughout the state have also been making.
We have also done this without asking you, the people of Nevada, to pay more for government. Doing so would be just – plain – wrong when many of you are already struggling to make ends meet.
Similarly, asking businesses to pay higher taxes will simply cause more layoffs and force more businesses to shut their doors. That would hurt our economy and drive more people into the line for state services we’re already struggling to pay for.
When I was a Congressman in 2003 I addressed the Legislature, speaking out against a proposed tax increase.
I quoted Winston Churchill as saying – A nation trying to lift itself into prosperity by raising taxes is like a man standing in a bucket trying to lift himself up by the handle. That bit of wisdom has stood the test of time, and I – will – veto anything coming out of the Legislature that calls for tax increases to fix our problem.
This economic struggle is ongoing and, unfortunately, our budget shortfall is growing. Revenues continue to decline and for the first time in at least the past 30 years … the state will take in less revenue this year … than it did last year.
Based on projections by the Nevada economic forum, the state is facing another 275- million dollar shortfall in our budget. I have worked with my staff to identify more than 20 areas lawmakers could consider to balance the budget. Some I agreed with. Others I did not. But regardless, balancing this budget will not be easy and will require some significant public policy decisions that warrant the attention of the full Legislature.
As such, I have called the Nevada Legislature into a Special Session beginning at 9 a.m. tomorrow to take action regarding this budget crisis. In my call for a Special Session, I am giving the Legislature full latitude to consider all reasonable options they deem necessary to address this shortfall. Please keep in mind that I believe we can address this crisis responsibly, without raising taxes, and I expect the Legislature to do so. Any plan that comes to my desk putting an additional fiscal burden on the people of Nevada will be vetoed.
I believe that you elected all of us to make difficult choices that are in the best interest of the state. It’s time that we act on that faith you have shown in us and balance this budget for the remainder of the biennium.
When our current budget was exploding, we made many promises to our citizens. We promised teachers a four percent increase in their salary for the coming year. We promised there would be new services from state agencies. We promised we’d increase the scope of some existing services, too. We over promised. But that doesn’t mean we shouldn’t live up to our promises.
There are some who would like the state to repeal those cost of living pay raises for teachers and state employees. Those four percent increases amount to 130-million dollars annually. But the great majority of that goes to teachers. And in a time when we’re struggling to recruit and retain top-notch teachers for our children, it wouldn’t be responsible to go back on our promise to them, and I can’t in good conscience recommend doing that.
Likewise, I could not support any attempt to reduce signing bonuses for teachers. It’s a valuable recruiting tool and it should remain in place.
When it comes to education, there have been many other options put forward, as well. We need to continue our commitment to education and we must protect the funding we have set aside for text books for our children. We must give them the tools they need to learn.
I’m simply not willing to recommend that we break these promises to our teachers, our school children and our citizens.
So, I believe we should do the following: first and foremost, we need to reduce spending in the areas we can reasonably and responsibly do so. I believe the Legislature should reduce the operating budgets of state agencies by a minimum of 128-million dollars.
This equates to four percent of current budgets. But I expect that legislators would prioritize these cuts to minimize any effect on education and health and human services.
Along with this significant reduction to spending, I am asking lawmakers to use an additional allotment of one-time expenses to make up the remaining shortfall.
Some of these include more than 27-million dollars from the public health trust fund … 45-million dollars by delaying some transportation projects currently in the design phase … seven-point-six million dollars in unclaimed property receipts … four-million dollars from the disaster relief account … three-million dollars from my tax amnesty program, and others.
There are enough options to consider that will reach our targeted shortfall of 275-million, but I expect this target to be reached in a responsible manner, without undermining the quality of our education system or the services to Nevada citizens.
If they are unable to accomplish this, then I believe it’s time the state get out of the tobacco business. Nevada currently collects money every year from the tobacco companies as part of a settlement agreement reached years ago. The amount of money we receive varies, and there’s no guarantee it will all be there in the future.
I believe that if the Legislature sees no other option, than we should do what more than 14 other states have done … protect ourselves from this volatility … and sell bonds based on this revenue stream … We can then use a portion of this one-time infusion of cash to help get us through the remainder of this budget while stabilizing Millennium Scholarships and other programs for the future.
Our current budget is more than 17 percent larger than the one approved in 2005. That increase is nearly equivalent to the more than one-billion-dollar shortfall we’ve seen this biennium.
We must get control over our spending. As such, I’m also asking the Legislature to set a new cap on state spending that will help prevent situations like the one we’re currently facing. If not now, than this will be a part of my budget proposal during the 2009 Legislative Session.
We currently have a cap on our budgets, but it’s impractical. It allowed us to increase spending this biennium by one-billion-dollars. I don’t consider that much of a cap. While it may not happen during this Special Session, I will ask the Legislature to pass a bill overriding this cap for the upcoming biennium, mandating a no-growth budget for the next cycle.
As I said before, I am leaving every reasonable option on the table for lawmakers to consider when they convene into Special Session tomorrow morning. I believe that targeted reductions to state spending and the use of those final reserve accounts is a fiscally responsible way to balance this shortfall.
Meanwhile, we need to be looking to the future to see how we can better prepare for economic turbulence and ensure we’re not in situations like the one we currently face. This is our responsibility as your elected representatives to government, and that’s a responsibility that I take very seriously.
Aside from these significant actions, I’m calling on the Legislature to approve some of the items we’ve agreed to previously, like drawing down the state’s Rainy Day Fund, to ensure our cash flow remains steady through the remainder of the fiscal year.
I also want the Legislature to give greater flexibility to state agencies to move money around between their various accounts. This will let agencies like the Department of Health and Human Services accomplish additional spending reductions without affecting some services. It will be a valuable tool for these agencies, and I believe they should be given this flexibility.
I understand that this is a process of negotiation between my ideas and those of lawmakers. I don’t expect everyone to follow my plan entirely. But I urge everyone to keep an open mind. I will do so. And together we can solve this crisis with the least amount of pain for the people of our state.
Tough times effect each and every one of us, rural ranchers and Las Vegas strip casino workers, young families and senior citizens. Republicans, Democrats and Independents alike. We are all in this together. And as your elected representatives we need to work together in a bipartisan way to ensure that we meet our shared challenges.
I know that I’ve spoken a great deal about the struggles our economy currently faces. While this is true, I would be remiss not to reaffirm my overwhelming faith in the state of the Nevada.
We may be in the midst of difficult times, but this state was built on the hardworking, entrepreneurial spirit of the pioneers who ventured west seeking their fortunes. It’s this spirit that will ultimately win the day in our current struggles … and I applaud each and every Nevadan … who awakes each day with that spirit in their hearts.
Thank you all very much for your time this evening. God bless you and good night.