(Sean Whaley/Nevada News Bureau) – A two-hour review by the full Senate [on March 28] of Gov. Brian Sandoval’s proposed two-year, $5.8 billion general fund budget spent a lot of time on what his spending plan could mean well into the future.
A report to the state Senate, meeting as a Committee of the Whole to hear an update on the recommended budget, shows the danger of future budget shortfalls because of the use of one-time funding options by Sandoval to balance the upcoming 2011-13 budget that will start July 1.
The 2013-15 budget faces a nearly $1.1 billion hole because some of Sandoval’s proposed revenues will not recur in future budget years, according to data provided by legislative fiscal staff.
Senate Majority Leader Steven Horsford, D-Las Vegas, said it is not responsible for lawmakers to approve such a budget.
“This governor’s budget creates a $1.2 billion-$1.3 billion hole in the next budget in 2013,” he said. “That is irresponsible of us as legislators to create a hole for another Legislature to deal with.”
The Sandoval administration rejected the criticism, saying decisions have to be made about the budget every legislative session. The analysis was also based on no revenue growth, which is unrealistic.
“There are decisions that will have to be made next time in the budget just like there are every time we put a budget together,” said state Budget Director Andrew Clinger. “So to say that we’re going to have a $1.1 billion hole assumes you make no decisions and change nothing and that the economy doesn’t grow at all. And those are just two assumptions that are just not valid.”
The 2009 Legislature approved temporary tax increases to balance the budget. These expiring increases have contributed to the lower revenue projections for Sandoval’s budget.
Dale Erquiaga, senior adviser to Sandoval, said: “We need for the Legislature to start closing this budget.”
Today’s budget discussion made it clear the Sandoval administration and legislative Democrats, led by Horsford and his Assembly counterpart, Speaker John Oceguera, D-Las Vegas, remain far apart on an acceptable spending plan.
“I’m not prepared to support the level of reductions that are proposed,” Horsford said at the conclusion of the budget review. “I think there is a lot we can still agree on.
“My hope is that as we talk about the cuts that we will have to make, the reforms that we’ve agreed should occur, that we will also talk about the revenue that is needed to responsibly balance this budget,” Horsford said. “And if we can do that in a cooperative way, then we should be able to close down the budget in a timely manner.
“If not, then it is going to mean doing business in a totally different way than we’ve ever done it before,” he said.
Senate Minority Leader Mike McGinness, R-Fallon, said the briefing was helpful but appeared to be designed to put a scare into his colleagues in an effort to advance the premise that additional tax revenues are needed to balance the budget.
“I think it was probably designed to scare us all a little bit,” he said.
Asked if it worked, McGinness said no.
McGinness said his caucus remains firmly opposed to any tax increases, or the continuing of taxes set to expire June 30, to balance the budget.
Sandoval has said repeatedly he will reject any budget that comes to his office with a tax or fee increase.
With Sandoval’s threat of a veto of any budget with tax or fee increases, Democrats in the Legislature face a tough sell to their GOP colleagues to gather enough votes to override a veto. Democrats would need three Republican votes in the Senate, and two GOP votes in the Assembly, to approve tax or fee increases over the objection of Sandoval.
The hole in future budgets was detailed in a report by Russell Guindon, a fiscal analyst for the Legislature, who said tax revenues would have to grow at 12.6 percent in 2014 and 2015 to make up for the loss of the one-time revenues included by Sandoval for the upcoming budget. Such levels of revenue growth are probably not attainable, he said.
Revenue growth for the state budget is officially set by a panel of private sector appointees called the Economic Forum.
One example of the future budget hole is a plan by Sandoval to borrow on the Insurance Premium Tax to generate $190 million to avoid cuts to various health and human resources programs. This would require payments of $53 million over four years starting in 2014 to pay for the revenue option for the upcoming budget.
Another is the proposal to use $300 million in school district bond reserve funds to fund public education operating costs.
Guindon acknowledged that the future budget hole estimated in his analysis would be less if tax revenues grow.
The hearing was cordial but a request by McGinness that Clinger be permitted to testify in the committee hearing was not granted. Clinger would have been able to provide information on a budget amendment submitted to the Legislature earlier in the day showing $120 million more in revenue for the budget than previously estimated, he said.
Horsford said the budget amendment came late and would have to be taken up at a future discussion.
In a statement announcing the revenue increase prior to the Senate budget update, Sandoval said: “I am pleased to announce that this amendment adds more than $120 million in revenue projections – the majority of which I have directed toward K-12 education.”
The budget discussion in the Senate did not include this new revenue, which is coming primarily from adjustments to the Net Proceeds of Minerals Tax and a higher level of federal support for Medicaid based on per capita personal income in Nevada.
The revenue increase does not mean more money in Sandoval’s budget, however. Instead, Clinger said the additional revenue will mean a reduction in the amount of bond reserve funds held by school districts needed to fund public education operating costs for the next two years.
Heidi Gansert, chief of staff to Sandoval, also said the insurance premium tax proposal is a last resort that will be used only if needed. Gansert also questioned the pay-back numbers discussed in the Senate hearing.
There was some modest cause for optimism about the budget. Clinger said he expects the Economic Forum to revise its revenue projections upwards when it meets May 2. Any additional revenue would be used by Sandoval and lawmakers to restore critical cuts to the budget.