Task force hears gloomy report on revenue gap

Analyst estimates state will need additional
$4.6 billion over 10 years

August 22, 2002 - CARSON CITY - Nevada needs an additional $4.6 billion in revenue over the next 10 years to cover the enrollment increases at schools and colleges and other growth-related factors, an economic analyst said Wednesday.

Jeremy Aguero, president of Applied Analysis of Las Vegas, said the growth of sectors of the state economy that need financial support is outstripping the expected increases in tax revenue.

School and welfare enrollments along with Medicaid caseloads will increase more in the coming decade than the overall population growth, he said. The latest gap in tax revenue is about $2 billion more than earlier estimates, though members attribute the discrepancy to a change in methodology.

"The service-demanding population is growing faster than the revenue-producing population," Aguero said.

He said state government revenue in the current fiscal year will fall $253 million short of current needs, or about $73 million more than estimates made in recent weeks by Gov. Kenny Guinn.

The governor last week ordered state agencies to cut spending by 3 percent. He also announced in early August that he will ask the Legislature to allow him to use $100 million in so-called "rainy day funds" to cover the remaining shortfall.

In making his projections, Aguero found the state must spend $2.82 billion in 2010-2011 to keep services at current levels. Spending in the 2001-2002 fiscal year was exactly $1 billion less than that figure.

Aguero said the current year shortfall is only the beginning of an increasing revenue gap. In the 2003-2004 year, he estimates the shortfall will be $378 million, followed by a $421 million gap the following year.

The shortfall will grow each year and reach a $655 million deficit in the 2010-2011 fiscal year, his estimates show.

Aguero made his report on the revenue shortfall to the Governor's Task Force on Tax Policy. He serves as a paid consultant to the task force.

The task force has been directed by the governor and Legislature to recommend tax increases that will cover the state revenue shortfalls over the next 10 years. Its recommendations are due Nov. 15. The Legislature will debate the proposals during the session next year.

The huge shortfall far exceeds the proposed tax increases that members of the business community have been backing.

At the task force's meeting last month, representatives of the Las Vegas Chamber of Commerce and other business groups spoke of increasing state revenue by about $120 million a year in the next two-year budget. Longtime legislative lobbyist Sam McMullen suggested doubling the state's $100 per employee per year business head tax.

During the Wednesday meeting, Nevada Taxpayers Association President Carole Vilardo proposed ways the state could reap another $20 million a year by requiring businesses to pay their taxes more quickly. She also suggested the Department of Taxation be equipped with computer and software systems to allow the electronic collection of taxes.

Task force members voted almost immediately to accept several of her suggestions. A letter will be written to the governor requesting the Taxation Department equipment improvements be made.

But members could not agree immediately whether to back levying sales taxes on services such as auto repairs.

Russ Fields, president of the Nevada Mining Association, said such a tax would be regressive and he favors taxing only discretionary purchases, such as movie and theater tickets.

Rather than auto repairs, task force member and casino executive Mike Sloan said lawn services, health and country club members should be assessed sales taxes.

"There was a time Mr. (Brian) Greenspun and I cut our own laws," Sloan said, referring to the editor and president of the Las Vegas Sun, another task force member. "If the tax were high enough, I might cut my own roses."

In response to questions from Task Force Chairman Guy Hobbs, Aguero said his projections for revenue needs are based only on growth in enrollments and caseloads, along with inflation. They do not cover salary increases for state employees and others.

"A policy decision needs to be made by the Legislature to include cost of living increases," Hobbs said.

Ken Lange, a task force member who serves at the executive director of the Nevada State Education Association, said he fully agrees with Aguero's projections that enrollment growth will exceed revenue increases.

"These kids show up at the door," Lange said. "It looks like the real wood to me."

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Article Copyright ©: E. Vogel, Review Capital Bureau