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July 27, 2017

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ESAs’ loss of earmarked money from pot tax is rainy day fund’s gain

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Chris Kudialis

The Nevada State Legislature building is pictured on Friday, June 2, 2017.

CARSON CITY — A 10 percent tax on recreational marijuana sales initially proposed to help pay for Education Savings Accounts will instead bolster Nevada’s rainy day fund after legislators chose not to move forward with the school voucher program.

Senate Bill 487, passed by the Legislature Monday, would allocate an estimated $60 million from Nevada’s new weed industry over the next two years, adding to $63 million already in the rainy day fund, said James Wells, director of the governor’s finance office. The emergency reserve can supplement Nevada’s general fund when the Legislature agrees to a money transfer.

“I think it’s important to have a substantial savings account,” Gov. Brian Sandoval said. “So that money will go into that, and that’s going to benefit education in the state of Nevada as well.”

The new direction for the funds came to life late Sunday on the Senate floor and was passed by the Legislature on Monday. Sandoval said Monday he will “absolutely be signing” the bill.

About 35 percent of the general fund is spent on K-12 education, meaning some of the tax revenue raised by recreational pot for the rainy day fund would likely be used for education.

Legislators in favor of the move touted the importance of a replenished reserve account, which had been depleted in each of the past four legislative sessions to balance the budget during and after the Great Recession. They also cited the unpredictability of estimated revenue from a recreational pot program in its infancy.

Nevada Legislature

Lobbyist John Piro, representing the Clark County Public Defenders Office, testifies during a Senate Judiciary Committee hearing in Carson City on Friday, June 2, 2017. Launch slideshow »

“This is a brand-new industry, so we really don’t know how much tax revenue it will bring in,” said Sen. Julia Ratti, D-Reno, at an Assembly Taxation Committee hearing on Monday. “Better this money goes to the rainy day fund instead of a fund that’s counting on it.”

“It gives some stability to that fund just in case,” added Assemblyman Steve Yeager, D-Las Vegas. “And we’re protecting against potential fluctuations with sales.”

Sen. Tick Segerblom, D-Las Vegas, who has played a major role in sponsoring and pushing marijuana bills through the Legislature, said he believes the tax could raise as much as $100 million.

Recent research suggests the account could use the extra funding.

A January 2016 study by George Mason University’s Mercatus Center ranked Nevada 43rd of the 50 states in preparedness for an economic downturn, and one of several states with “limited options for dealing with the budget shortfalls and the fiscal stress” of a recession.

“The state is not prepared for the revenue shortfalls that would occur during a recession of average severity,” researcher Erick Elder said.

That falls in part on the rainy day fund, which has contributed $736 million to the state’s general fund since being established in the 1979-1981 biennium, according to Las Vegas economic analyst Jeremy Aguero.

Legislators voted to expand the fund during the height of the Great Recession after its all-time high of nearly $270 million was withdrawn and spent to compensate for Nevada’s flailing real estate market in 2009. The 2009 Legislature mandated that at least 1 percent of all state revenue must go to the fund per Assembly Bill 175, and total contributions were capped at 20 percent of total state revenue, up from 15 percent.

The rainy day fund has since been depleted four times, with transfers to the general fund coming during a special legislative session in 2010, the 2011 Legislature, the 2013 Legislature and 2015 Legislature. Wells said estimates from the both marijuana tax and the minimum state revenue additions will raise the rainy day fund to about $175 million by the 2019 session, if it’s not drawn from again during a special session.

The bill's final steps through the Legislature weren't approved by all Nevada lawmakers on Monday. Assemblyman James Oscarson, R-Pahrump, was among naysayers in a 32-9-1 vote on the Assembly floor. Oscarson, along with Jim Marchant, R-Las Vegas, said he voted against the bill in part because it was an extra tax, and it wasn’t going to help fund ESAs.

“Some of the things we made sure were going to be priorities for us in this session didn’t come through,” Oscarson said. “And I didn’t want to support a tax that was going to work for the other side.”

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