Pieces of budget puzzle falling in

By J. Patrick Coolican, David McGrath Schwartz

Sunday, May 3, 2009 | 2 a.m.

Legislators have not reached a final agreement on how to solve Nevada’s budget crisis as they face key deadlines this week to fund state spending, but the broad outlines of a deal have emerged.

Legislators are working on an agreement that would raise taxes by $700 million to $800 million, while reducing the salaries of state workers and teachers by as much as 4 percent and cutting a broad swath of programs, according to two of the dozen or so lawmakers participating in the closed-door “core group” meetings.

To raise the new revenue, legislators would increase the modified business tax, essentially a payroll tax, from 0.63 percent to 2 percent, and raise the sales tax, perhaps a quarter percentage point, said the legislators, who asked not to be identified because of the sensitivity of the ongoing negotiations.

The legislators are also considering hikes in so-called “sin taxes” on alcohol and tobacco, though the recent steep increase in the federal tobacco tax to pay for health care for poor children has made a tobacco tax increase less likely, according to a member of the core group, which includes representatives of both parties and both houses.

The mining industry, which has racked up record profits with the soaring price of gold, is likely to take a small hit.

Assembly Speaker Barbara Buckley, D-Las Vegas, wouldn’t discuss a tax increase. But, she said, the core group is close to a deal on which of Gibbons’ budget cuts to restore.

“We’re making significant progress and working together. There’s no partisan bickering,” Buckley said.

State Sen. Warren Hardy, R-Las Vegas and a core group member, agreed with Buckley and said a deal is close: “I felt strongly that we’re moving forward toward a consensus. I came out optimistic that we’re going to work together to get it done. It’s the most optimistic I’ve been.”

The mood is hardly celebratory, however. Never before has the Legislature had to make such deep cuts to cherished programs in health care and education, areas where Nevada lags in performance measures.

The tax increase will be equally painful, as Republicans will be accused of betraying party principles and Democrats will be charged with going their usual route.

The crisis was laid bare late last week, when Gov. Jim Gibbons’ budget director, Andrew Clinger, and the Economic Forum, the state’s official fiscal forecaster, said legislators would have to find close to $900 million to meet the governor’s recommended budget.

That budget, which included a 6 percent pay cut for teachers and state workers and a 36 percent cut in higher education, was considered unacceptable in the Legislature.

Reacting to the latest bad news, the governor said he would ask for even deeper cuts in state salaries along with additional budget cuts.

Legislators of both parties think the governor’s budget, and his plan to cut even deeper, would devastate state government, K-12 education and public colleges and universities. That, in turn, has motivated them to reach a deal quickly so they have time to override his expected veto of a tax increase before the 120-day session ends June 1. Buckley said lawmakers will pass a plan by May 21 so they can finish by June 1.

“If we don’t reach a consensus and process an alternative to the governor’s budget, the governor’s budget will be the alternative,” Buckley said. “I haven’t talked to anyone who thinks that’s possible for our state.”

The urgency of a deal is heightened by the need to close key budget holes this week.

Monday, a committee will decide how large a pay cut state workers will face. In the following days lawmakers will decide on Medicaid’s budget, retiree benefits, and K-12 and higher education funding.

To do all of that, they will need to know exactly how much money they have, which means agreeing to the size of a tax increase and knowing how much the state will receive in federal stimulus money.

Clinger has said the federal stimulus will offset the estimated $900 million shortfall by $350 million. Buckley thinks the state’s take from the stimulus will be higher.

Legislative staff continues to be uncertain about the size of the stimulus and accompanying mandates on how it can be used. Core group members say that is holding up final negotiations. They will meet again Monday and hope to have an agreement then.

It’s not clear that everyone is completely onboard, however.

Senate Majority Leader Steven Horsford, D-Las Vegas, seems less willing to agree to steeper budget cuts and more willing to support a bigger tax package. He said he is open to a tax increase greater than 2003’s $836 million hike.

“I don’t know $836 million is some magic number,” he said. “This is a different time, we’re at a different point in our state. There are difficult decisions to make.”

Though Horsford is the majority leader, he doesn’t have much leverage because at least two Republican votes will be needed to override a veto by the governor, and Minority Leader Bill Raggio, R-Reno, wants the backing of many more Republicans so the plan has a bipartisan stamp, providing everyone much-needed political cover.

Republicans are using that leverage to push for changes in public employee benefits and retirement programs to reduce long-term costs.

Republicans have also demanded that any tax increases automatically end after two years unless they are renewed by the 2011 Legislature.

Clark County will also take a hit. Legislative leaders said last week that a plan to take property tax revenue from the county is in the mix.

Republicans would like to give the county relief by granting the Clark County Commission more legal leverage in its bargaining with local government unions. That would be a bitter gift for the all-Democrat commission, whose members are almost uniformly close to organized labor.

Meanwhile, the 2010 governor’s race is providing a telling backdrop to the budget drama.

Gibbons, who has a long record of opposing taxes even though he included a 3 percentage point room tax increase in his budget, must oppose additional taxes to have any shot of winning the Republican primary.

Buckley, meanwhile, doesn’t want to be saddled with the largest tax increase in state history. And, she will likely be running in the Democratic primary against the chairman of the Clark County Commission, Rory Reid.

Despite the long-term partisan implications, for the most part the negotiations have been amicable, Hardy said.

“It’s not that we’ve found religion. It’s just that there’s nothing to fight about,” he said. “Nobody likes this — the revenue or the cuts. Nobody in either house, either party. We’ve gone so far on the cuts, and more revenue in this economic environment is offensive to everybody.”