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State legislators disagree on solutions to projected $3 billion budget shortfall in 2011


By Phillip Moyer, Nevada News Bureau

With the Nevada Legislature reaching a deal to close the $800 billion shortfall late Sunday, party leaders referred to the intimidating difficulties they will face in next year’s session when legislators will have to deal with a projected $3 billion shortfall in the next biennium.

On the table, most legislators predict, will be an extension of the tax hikes created in Senate Bill 429, which are scheduled to sunset on June 30, 2011. The taxes, which include higher sales taxes and payroll taxes, currently bring in about $800 million each biennium.

“If they’re allowed to , the deficit gets bigger. The question becomes, is it wise to let them sunset and have a bigger hole to fill, or to revise or extend the taxes?” asked Assemblyman Marcus Conklin, D-Las Vegas.

When asked about the possibility of extending the tax, Senate Minority Leader Bill Raggio, R-Reno, answered, “I’m not going to predict anything for next session, but the answer’s fairly obvious. You are looking at a potential $3 billion-plus shortfall next session, so anything that contributes to the shortfall will have to be under discussion.”

Many Democratic legislators hope they will be able to restructure Nevada’s tax system instead of simply renewing the tax hikes. They hope that the study by the Nevada Vision Stakeholder Group to review the state’s revenue structure will find a more stable source of revenue than the current tax system, which many Democrats consider regressive. The study is due to be completed on July 1 of this year.

“I didn’t really like voting for that sales tax last session, because it is a regressive tax,” said Assemblyman James Ohrenschall, D-Las Vegas. “It hurts poor people more than wealthy people. I think we need to look at some of the other industries that can afford to contribute a little bit more.”

Assemblyman Joseph Hogan, D-Las Vegas, called the current fixes to the budget a “complicated patchwork” and said that the budget issues Nevada faces will not go away unless a different approach is taken.

“I think that, in order to cope with the much larger problem, we will have to take a whole new look at the entire revenue situation. I see the possibility of a complete overhaul,” he said.

One suggestion mentioned by many Democrats is the introduction of a broad-based business tax, which would take acquire more revenue from Nevada businesses.

Senate President Pro Tempore Michael Schneider, D-Las Vegas, says the lack of a broad-based business tax has not benefited Nevada in any way, as the low taxes haven’t successfully attracted high-quality, high-income businesses to the state. Schneider also added that despite states such as California and Utah having broad-based business taxes, goods and services there are roughly the same price as in Nevada.

“ are willing to pay down there to support the schools, the roads, and the social fabric of California, or the social fabric of Arizona or Utah,” Schneider said. “They’re not supporting the social fabric of Nevada.”

But Republicans are wary of increasing business taxes during the recession, saying that Nevada businesses don’t need more tax burdens in these economic conditions.

“Every business pays the same amount of taxes—property taxes, employment taxes. A broad-based business tax would just be another thing that business would have to deal with.” said Senator Mike McGinness, R-Fallon. “I think it would stress them further, and probably lead to higher unemployment.”

A common theme among Republican legislators’ opinions on the next budget was the suggestion of further cuts to government spending, with many saying tax increases will not permanently fix the state’s continuous budget problems.

Assemblyman Don Gustavson, R-Sparks, said the best way to deal with the state’s budget issues would be to look at the 2001 state budget and determine how much taxes would have raised according to inflation, had legislators put a cap on spending at that time. Any programs that were expanded or created in following sessions, Gustavson said, should be cut.

“I think government’s gotten totally out of hand. We need to control the size of government back down to reasonable, necessary services,” said Gustavson. “It appears that all Democrats ever want to do when they get down here is look for ways to increase taxes and revenue. They’re never happy. With every growth in taxes we receive, they always want more.”

Not all Republicans felt that enough could be cut from the budget to make up for the projected shortfall, however.

“If you look at the level of services we have, which has been about $7 billion–we could probably get down to a $5 billion service level. We’ll still need another billion,” said Assemblyman Joe Hardy, R-Boulder City. “Even if we got down to a $5 billion budget, we’ll still have to come up with some revenue to make up for the $3 billion that we don’t have right now.”

However, Hardy said that he did not think that restructuring the tax system would solve the budget issues. He pointed to California, which also struggles from budget issues, despite much higher taxes.

Hardy said that he hoped an economic recovery would help make up for the funding gap, and allow Nevada to create a savings account for its assets to prevent similarly dismal budget issues in the future.

Assemblyman Richard McArthur, R- Las Vegas, also believes that tax increases won’t solve the budget issues that the state is facing.

“I would rather keep cutting now and do the right thing and solve the problem, rather than leave us this monster hole that we’ll have next time. But unfortunately I think that this body won’t do that,” he said. “We aren’t solving the problem. We’re putting a band-aid approach on it, and we’re going to be in such a big hole, I don’t know what we can do.”

None of the seven Republican legislators interviewed were entirely in favor of the tax cuts, though four were not able to entirely dismiss the idea of extending them. The remaining five did not believe they should be extended.

Of nine Democratic legislators, only one was entirely in favor of the extension, six said that they would consider extending the taxes but preferred a restructuring of Nevada’s tax system, and two considered the taxes too regressive and wanted to focus entirely on restructuring the system.

The next legislative begins in on February 7, 2011.

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