Budgeting: County heeds, state bleeds

By Tony Cook

Saturday, May 24, 2008 | 2 a.m.

Nevada’s two largest governments — the state and Clark County — are in strikingly different financial positions as the nation experiences an economic slump.

Less than halfway through the state’s $6.8 billion budget biennium, Gov. Jim Gibbons has slashed spending twice and there’s talk of a third round of cuts before the summer ends — reductions that could require layoffs and even deeper hits to programs.

The county, on the other hand, is not even considering layoffs, having just passed a $1.4 billion annual budget that creates 90 new positions. And though the budget will provide far less money for capital projects than in past years, the county has remained largely unscathed by the economic downturn.

The county’s financial stability is both a blessing and a curse. Although it allows the county to avoid painful service cuts and layoffs, it also draws attention from state officials. The governor and some lawmakers are eyeing the county’s coffers as a potential source of revenue to help bail out the state in 2009.

The explanation for why the county and the state find themselves in such different financial positions begins with how each entity budgets. And budgeting begins with revenue projections — an area where the county is more conservative.

The county projects sales tax revenue using the past five years’ average. That has the effect of leveling out economic peaks and valleys, helping the county avoid being caught off guard by a sudden financial downturn.

The state, in contrast, relies on projections approved by the Economic Forum, a group of businesspeople appointed by the governor and legislators. That group’s two-year projection of tax revenue provides less of a buffer from financial ups and downs than the county’s five-year average.

The way the county and the state spend their money is a factor, too.

Take, for example, how each entity reacts when it receives higher-than-expected revenue.

When county commissioners approve their annual budget in May, even if they can reasonably predict that revenue for that fiscal year, which ends June 30, will exceed expectations, they don’t plan to spend that money in the budget they are crafting. Instead, they wait until the following year’s budget to allocate that money, when it is actually in hand.

The state does not wait. If the Economic Forum predicts in May that the state will bring in more revenue than expected, legislators tend to immediately allocate that money.

Put another way, under those circumstances, the county refuses to spend money it does not yet have, a luxury state officials say they do not have because the Legislature does not meet the following year.

Another major factor is simply how each government is set up.

The state operates on a two-year budget cycle that goes like this: The Economic Forum approves projected tax revenue for the upcoming two years. The governor uses that information to create a proposed budget that he submits to legislators. The Economic Forum approves an updated version of its two-year projection. Lawmakers then tweak and approve the governor’s proposed budget during a four-month session every other year.

Because of that cycle, the state essentially is trying to guess more than two years ahead of time how much money it will have. This year has been a lesson in just how tricky that can be.

“We’re using one hell of a crystal ball,” said Assemblyman Morse Arberry, D-Las Vegas, chairman of the Assembly Ways and Means Committee.

The county, on the other hand, sets its budget once a year, giving it much more flexibility. County commissioners then meet twice monthly and can adjust the county’s spending, hiring and construction projects to reflect changing economic conditions.

“We project conservatively and we make adjustments throughout the year to reflect reality,” Commission Chairman Rory Reid said.

Another factor is the number of people involved in making the decisions.

“Look at the number of fingerprints that end up on the budget,” said Guy Hobbs, a former Clark County financial officer and adviser to Gov. Kenny Guinn who’s now a financial consultant. “It’s much more challenging at the state level.”

(In case you missed civics class, that’s a governor and 63 lawmakers in Carson City and seven commissioners at the county level.)

The result is that the county is better able to weather financial tempests, and the state ends up looking for something to grab on to.

County officials say they shouldn’t be penalized for good financial management. But state lawmakers look at it differently.

“I don’t know how the county budgets,” Arberry said. “I just feel they have a lot of money and they don’t think they do.”

Andrew Clinger, the governor’s budget director, argues that the state is more reliant on sales tax than the county — a problem because sales tax is more sensitive to a souring economy than other forms of taxation, such as property tax.

In fact, both governments rely on sales tax for about a third of their operating budgets. Property taxes, however, support roughly another third of the county’s operating budget, with the rest coming from license and permit fees, charges for services and other sources.

The state depends on gaming tax revenue for nearly a third of its budget, with other taxes and fees making up another third.

But although the county’s operating budget relies more on stable property taxes than does the state’s, Nevada benefits — though indirectly — from the largest single portion of the property tax bills residents pay. That portion goes to school operations and offsets the state’s obligation to fund education.

Clinger, however, points out that sales tax also supports schools, so when that revenue drops the state must make up the difference.

Such details could be important as state and county leaders face off over a potential shift in property tax revenue from the county to the state. In the meantime, state revenue figures due this month are expected to help determine whether the governor will seek more cuts.

County officials, meanwhile, are nervously planning for the expected onslaught in the 2009 legislative session and are in the process of hiring a lobbyist. Between now and then, don’t expect to hear county leaders bragging about their financial stability without also mentioning how much sacrifice it took to reach that point.

“You get punished in a lot of cases for doing a good job,” Hobbs said. “Sometimes you ask yourself, ‘Should we show more pain?’ ”